wp.20.business case methodology

Business Case MethodologyBusiness Case Methodology

(Presented by Chaouki Mustapha(Presented by Chaouki MustaphaEconomist, ICAO)Economist, ICAO)

SIP/2004SIP/2004--WP20 WP20 Business case Business case

Special Implementation ProjectSpecial Implementation Project

Workshop on the development of business case for the Workshop on the development of business case for the implementation of CNS/ATM systemsimplementation of CNS/ATM systems

Cairo, 6Cairo, 6––9 September 20049 September 2004

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Outline

BackgroundOptions for the implementation of CNS/ATM systemsBusiness caseEconomic assessmentFinancial AnalysisRisk Analysis and Management

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Background

World-Wide CNS/ATM systems implementation Conference (Rio 1998)32nd Session of the Assembly (Resolution A32-12)33rd Session of the Assembly (Resolution A33-19)

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Options for the implementation of CNS/ATM systems

The planning of air navigation systems, including CNS/ATM, has to respond to the identified operational requirements and ATM objectivesExistence of a multitude of options that achieve these goals:

Operational optionsTechnical optionsInstitutional optionsFinancial options

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Options for the implementation of CNS/ATM systems

Decision makers need to be able to compare implementation options, rank them and choose among themWhat type of criteria?

OperationalTechnicalEconomicFinancial

Business case

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Definition of a business case

A business case is a substantiated argument for a public project, a policy or a program proposal requiring a resource allocation and/or investment, often including a financial commitmentA tool supporting planning and decision-making

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Content of a business case

A business case sets out the context of the problem or situation being addressedIt provides a thorough description of the proposal, the rationale for its selection among other alternative options and a comprehensive assessment of its benefits, costs and risksIt takes cost benefit analysis a step further

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Content of a business case

The main sections of a business case are:Description of the proposalIdentification of the stakeholders / partnersCost-benefit analysisFinancial analysisRisk analysis and management

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Need for a business case for CNS/ATM

Slow implementation of CNS/ATM SystemsReluctance towards adoption of new technologyDisagreement among stakeholdersLack of funding

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Partners/Stakeholders

Need to identify all partners/stakeholdersCosts, benefits and risks should be identified and evaluated for each partner/stakeholderIntegrated business case

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Air NavigationAir NavigationServiceService

ProvidersProviders

AirspaceAirspaceUsersUsers

FinancialInstitution

OtherA/C manufacturersATM Equipmentsuppliers

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Analysis Process

RiskRiskAnalysisAnalysis

Financial Financial AnalysisAnalysis

Provider/UserProvider/User

–– StateState–– SubSub--regionalregional–– RegionalRegional

Cost/Cost/BenefitBenefit

Business caseBusiness case

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Stages of the Business CaseDraft

Businesscase

Providersperspective

Userperspective

Co-ordination

Finalbusiness

Case

To theFinancing

community

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Prerequisites

Homogeneous ATM area clearly defined (State/service provider, group of States, sub-region, region, etc.)Consultation and coordination between service providers with adjacent areas of responsibilityConsensus among stakeholders/partners on the need for the new technology

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Prerequisites (cont’d)

Availability of the new technology's facilities and equipmentExpected costs of equipment and operations established with an acceptable margin of uncertaintyRecognition and awareness of international cost recovery policy for air navigation services (ICAO’s Policies on Charges for Airports and Air Navigation Services, adopted by the Council in December 2000 and published as Doc 9082/6)

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Prerequisites (cont’d)

Existence of an effective cost and revenue accounting systemSound and agreed methodology for determining the cost basis for chargesAn effective mechanism for the collection of charges

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Data requirements

TrafficTraffic densities and traffic flowsTraffic forecasts

Current configurationCost of operations of the service providersInventory and costs of current air navigation systems’equipment and facilities:

Communications (Air/Ground, Ground/Ground and avionics) Navigation (En Route, Terminal and Approach and Avionics)Surveillance (En route, Terminal and avionics)ATM

Level of user charges

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Data requirements (cont’d)

Future configurationOperational requirementsCost of new air navigation systems’ equipment and facilities:

Communications (Air/Ground, Ground/Ground and avionics) Navigation (En Route, Terminal and Approach and Avionics)Surveillance (En route, Terminal and avionics)ATM

Transition pattern and cost of transitionFacilities, equipment and avionics costs

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Main impediments

Lack of coordination and consultation among service providers with adjacent areas of responsibility Lack of coordination and cooperation among stakeholdersNon homogeneity of areas selected and redundancy of facilities and equipmentAmbiguous institutional or legal formatLack of financial guaranteesUnavailability or inaccuracy of data required

Economic assessment

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Cost benefit analysisCost effectiveness analysisLeast cost approachSnapshot approachValue analysisOthers

Methods and techniques

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Gives an indication of the total economic welfare effects of a project;Covers all costs and benefits, both quantitative and qualitative including external costs;May serve for the financial analysis which has a narrower scope

Uses of cost benefit analysis

Financial Analysis

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Tool to provide:Investment informationCapital needsUser fee structureCash flow requirements

Tool to quantify the financial risks and bring service providers and financial organizations to reach consensus

Uses of the financial analysis

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Output of the financial analysis

Profitability of the projectCash flow profileFinancing requirementsRequired level of user chargesCost recovery period

Evaluation of Implementation Options

Institutional arrangementsExisting equipmentTraffic density & growthEquipment costPricing policiesTiming of the transition process

Risk Management

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Objectives of risk management

Not to eliminate risksBut, to identify them and minimize their effects through:

improved awareness of their likelihood of occurrence and potential impact and;development and implementation of appropriate mitigation plans

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Risks for the implementation of CNS/ATM systems

Exchange ratesSchedule, extended transitionTraffic growthRate of returnEfficiency ratesSystems integration failureResistance to change

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Guidance Material

New CircularIn preparation phase

Guidance material including software

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